No. 2 automaker to close 14 North American manufacturing plants in effort to stem losses.

By Chris Isidore, CNNMoney.com senior writer

January 23, 2006: 4:18 PM EST

NEW YORK (CNNMoney.com) -
Ford Motor Co. said Monday it plans to close 14 manufacturing plants in North America and cut between 25,000 to 30,000 jobs by 2012 as it tries to stem losses and adjust to its new, significantly lower market share.

The nation's No. 2 automaker said that it will close a total of seven North American assembly plants. Three U.S. assembly plants identified for closing in the next three years are in St. Louis, Wixom, Mich., and Atlanta. Two other assembly plants yet to be determined will also be closed by 2008, while Ford's St. Thomas, Ontario assembly plant, with nearly 2,600 employees, will lose one of its two shifts.

The Ford Wixom plant is one of three U.S. assembly plants identified for closing Monday.

The seven other plants to be closed are powertrain and stamping plants, such as the Batavia, Ohio, transmission plant, with more than 1,700 employees.

The cuts will trim Ford (up $0.38 to $8.28, Research)'s North American capacity by more than a quarter, or 1.2 million vehicles. Ford's North American plants ran at about 75 percent of capacity in 2005, according to Mark Fields, the president of Ford's operations in the Americas.

"That is clearly unsustainable," he said.

But even with the reduced capacity, Ford will have North American capacity of about 3.4 million vehicles, or about the same number of vehicles it sold in North America in 2005, and some of those sales are from its import brands like Volvo and Land Rover. Some experts said that while Monday's announcement is a step in the right direction for the troubled automaker, it may not be enough.

"I think they were a bit more aggressive than some on Wall Street expected. But it sounds like they're still going to be out of line," said Walter McManus, director of Office for the Study of Automotive Transportation at the University of Michigan "They talk about their (market) share stabilizing in the near term. But I think they'll lose share this year."

"They're not turning out nearly as much new product this year as the competition is," McManus added. "They already have the oldest cars and trucks in showrooms of any of the top six manufacturers."

Deep cuts in current work force

The cuts represent about 18 to 21 percent of the employees in its North American auto operations. The closings will cut even deeper into U.S. hourly employment of 82,000, though the exact percentage is not yet known.

But the cuts won't come immediately. Some will not take effect until six or more years from now, and many will be accomplished through attrition and retirement. Ford has a contract with the United Auto Workers union that runs through September 2007 requiring laid-off employees to be paid nearly their full pay. That will require Ford to offer buyout packages to many of the employees who are laid off in order to accomplish the cuts.

Don Leclair, Ford's Chief Financial Officer, said about half the cuts would likely be accomplished through normal retirement and attrition, while half will be accomplished through "inducements."

UAW President Ron Gettelfinger issued a statement saying that the Ford announcement was "extremely disappointing and devastating."

"The announcement has further left a cloud hanging over the entire work force because of pending future announcements of additional facilities to be closed at some point in the future," said the union statement. "Certainly, today's announcement will only make the 2007 negotiations all the more difficult and all the more important."

Local government officials had lobbied Ford to try to keep their plants off the closing list, but in the end the plant closings announced Monday were not a surprise. In fact, the St. Louis plant had been targeted for closing in the last restructuring at Ford in 2002 before it was given a temporary reprieve.

Shares of Ford, which were up in early trading on better-than-expected fourth-quarter financial results, gained more following the mid-morning announcement giving details of the already anticipated plant closings and job cuts, although they were off their highs in early-afternoon trading.

Cuts in management, new plant promised

Ford did promise that it would make new cuts in management, trimming its officer ranks by 12 percent and its salaried work force by about 4,000 in the first quarter of this year. And while it gave no details on timing or size, it said it planned to build a new low-cost manufacturing site as part of the restructuring plan.

The company said it also plans to trim $6 billion a year from the cost of its material purchases by entering into new agreements with suppliers and using common parts on most vehicles.

Chairman and CEO Bill Ford said the cuts would be painful, but are necessary in order to respond to customer demands. He admitted that Ford had been hurt by the customer shift away from large-size SUVs, leaving Ford with too much capacity of the large, less fuel-efficient vehicles.

"If we build it, they'll buy it. That's business as usual and it's wrong," Ford said. "Our product plans for too long have been defined by our capacity. That's why we must reduce capacity in North America."

The St. Louis plant, with about 1,500 employees, makes the Ford Explorer and its Mercury twin, the Mountaineer.

Ford promised that the company would make 250,000 fuel-efficient gas-electric hybrid vehicles annually by the end of the decade. Mark Fields, the president of Ford's operations in the Americas, said Ford would make a new push to try to capture the small car segment, in which it had trouble making money in the past.

The other two plants identified for closing are the Wixom plant, which has about 1,600 employees and makes the Lincoln LS and Lincoln Town Car, as well as the Ford GT, and the Atlanta plant, with about 2,000 employees, that makes the Taurus.

Declining market share

Ford has seen U.S. auto sales fall each of the last six years, and its overall U.S. sales are now down more than 1 million vehicles, or 26.6 percent, since 1999. In 2005 alone, Ford's sales fell nearly 5 percent to less than 18 percent of the market, the 11th straight year it has lost share. It's had about 25 percent of U.S. sales as recently as 1998.

Bill Ford told analysts hearing the details of the restructuring plan that the company would no longer give annual earnings targets or guidance, saying that was needed to change the company's focus from the short term to the long term.

"We can not succeed in the long run if we're only focused on the short term," said Ford.

But Fields, a key architect of the turnaround plan, did pledge to analysts that the company would return North American automotive operations to profitability by 2008, and to stabilize U.S. market share at current levels.

Fields repeated his previous statement that the company needed to "change or die."

"I thought that was an appropriate phase," said David Cole, chairman of the Center for Automotive Research. "They have to change pretty substantially."

Cole said that plans by Ford executives to have quicker vehicle design and more flexible manufacturing plants are as important as the amount of capacity that is closed.

"If they're successful at getting leaner and more flexible as they talk about, it gives them ability to adapt to the market," said Cole.